Not even the large-scale construction, hiring and other spending associated with the Olympic Games has managed to lift Britain out of its deepening economic funk.

The country is firmly back in recession for the second time since the global financial crisis of 2008-09, marking its longest double-dip downturn in decades, the latest figures show. And with a government committed to sticking to its tough budget-cutting plan, prospects for a quick rebound seem remote.

An employee filling up his natural gas truck at Encana's new compressed natural gas (CNG) fueling station in Louisianas Red River Parish, which was opened on November 30, 2010

Tech

Britain’s economy shrank 0.7 per cent in the second quarter, the Office for National Statistics reported Wednesday. The third consecutive negative quarter featured the biggest decline in gross domestic product since early 2009, far exceeding what most economy watchers had predicted.

The slide highlights the fact that Britain has been unable to escape the tide of woe washing across the channel from the slumping euro zone countries, despite having its own currency and independent monetary policy.

By failing to pursue a more aggressive path of monetary easing to bring down the value of the British pound and boost competitiveness, the Bank of England has been likened to a card player holding a trump card but who chooses not to play it.

“This really is a very nasty surprise indeed,” Howard Archer, chief Britain economist with IHS Global Insight in London, said of Wednesday’s data.

Manufacturing and services both weakened. And with the Olympic projects largely completed, construction activity slumped 5.2 per cent.

For people like Mabel Agyeman, Britain's recession seems never-ending.

“There's a recession all over the world, right?” she said, standing near her home in East London.

“Who knows when it will end?” Ms. Agyeman, who works in administration with the London Brigade, recently had her work week cut to four days from five.

Optimism was plentiful when London won the bid to host the Olympics in 2005. Back then, the economy was in the midst of a 13-year boom. House prices were soaring along with the stock market and unemployment was scarce. Winning the Olympics for the third time was seen as confirmation of London’s predominant place in the world. No other nation had hosted the Games that many times.

But with the Olympics set to begin Friday, the picture has darkened considerably. Unemployment is twice as high as it was in 2005 and the government has said its five-year austerity program will be extended an extra five years to 2020.

“We all know the country has deep-rooted economic problems and these disappointing figures confirm that,” Chancellor of the Exchequer George Osborne said. But he reaffirmed the government’s commitment to belt-tightening.

Britons don’t need Mr. Osborne or the number crunchers to tell them life is getting tougher.

Dee Bryan can see the Olympic venues from her house in East London, but she doesn’t feel much like celebrating the Games. The 26-year-old has been out of work for seven months, and the public school her five-year old daughter attends has just seen its budget cut to the bone.

“I don’t really believe [the Olympics] are going to change things,” she said, nodding at the Olympic Stadium just a few minutes’ walk away. “I’m really not optimistic.”

But others are still hoping for a boost from the Olympics. The Games have created about 40,000 jobs, mainly in construction for the many venues. And there have been other spinoffs, such as the new Westfield mall, billed as the largest in Europe, which sits next door to the Olympic Park, as well as new rail lines, terminals and other infrastructure projects.

But many of the jobs are temporary, few of the benefits have filtered through to the rest of the country and optimism is fading about what will happen when the Games end next month.

In London, unemployment fell to 8.2 per cent from 10.1 per cent quarter over quarter.

“It looks like there is a short-term impact for London employment from the Olympics,” Tony Travers, the director of LSE London, an urban and political affairs research unit at the London School of Economics, said Wednesday at a conference on the Games' economic effects. A Goldman Sachs economist estimated the Games will boost Britain’s GDP by 0.3 to 0.4 per cent in the third quarter, helping to offset the recent declines.

While Mr. Travers acknowledged that “it's hard to be sure” the Olympics can take full credit for the improved jobs picture in London, he said there is little doubt the £9.3-billion development of the once derelict Olympic site in East London is spurring some growth. “It's exactly the kind of counter-cyclical investment that we need.”

Britain is traditionally the first developed country to release preliminary GDP numbers for a quarter. The data typically face extensive revision as more complete information rolls in, leading economists to warn that it can paint an inaccurate picture.

But if Britain follows the same pattern as some of its major trading partners, the outlook for recovery is far from bright. The European Union accounts for half of all British exports. And Britain’s other key markets, the U.S. and China, are slowing.

“We’re dealing with our debts at home and the debt crisis abroad,” Mr. Osborne said in a statement.

“We’ve made progress over the last two years in cutting the deficit by 25 per cent and businesses have created over 800,000 new jobs. But given what's happening in the world we need a relentless focus on the economy.”

Restrictions

All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. Thomson Reuters is not liable for any errors or delays in Thomson Reuters content, or for any actions taken in reliance on such content. ‘Thomson Reuters’ and the Thomson Reuters logo are trademarks of Thomson Reuters and its affiliated companies.